<PAGE>   1
                                 UNITED STATES
                            SECURITIES AND EXCHANGE
                                   COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-KSB



 X      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE 
---     SECURITIES EXCHANGE ACT OF 1934
    



                  For the Fiscal Year Ended August 31, 1996
                                            ---------------


        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
---     SECURITIES EXCHANGE ACT OF 1934


               For the transition period from        to
                                              ------    ------

                      COMMISSION FILE NUMBER:  0-18091
                                               -------

                             RSI HOLDINGS, INC.
             ---------------------------------------------------
                (Name of small business issuer in its charter)
 


        North Carolina                            56-1200363
-------------------------------                   ----------
(State or other jurisdiction of           (I. R. S. Employer
incorporation or organization)                    Identification No.)


            Post Office Box 6847, Greenville, South Carolina  29606
            ------------------------------------------------  -----
               Address of principal executive offices    (Zip Code)


Issuer's telephone number (864) 271-7171
                          --------------

Securities registered under Section 12(b) of the Exchange Act:



                                         (Name of each exchange on
         (Title of each class)              which registered)
         ---------------------------------------------------------
               None                                None


Securities registered pursuant to Section 12(g) of the Exchange Act:

                                  (Title of Class)
                                  ----------------
                            Common Stock, par value $.01
 


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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.  Yes   X   No
                                                               -----    -----

     Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B  contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [x]

<TABLE>
   <S>                                                      <C>
   State issuer's revenues for its most recent fiscal year. The issuer had no revenues from operations during fiscal 
                                                            1996, but had revenues from leasing and other activities 
                                                            related to the liquidation of the issuer's assets.  Reference 
                                                            is made to the Financial Statements and accompanying Notes 
                                                            attached as part of this report, as well as to Part II, Item 6 - 
                                                            "Management's Discussion and Analysis of Financial Condition 
                                                            and Results of Operations," which are incorporated herein by
                                                            this reference.
</TABLE>

     State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and ask prices of such stock, as of a specified date within
the past 60 days.  The aggregate market value of the voting stock held by
non-affiliates as of October 4, 1996 was $364,449.

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:  October 11, 1996


                Common Stock, par value            7,994,292 shares outstanding
                $.01 per share


DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's definitive Proxy
Statement, to be filed pursuant to Regulation 14A for the annual shareholders'
meeting currently scheduled to be held on January 16, 1997, are incorporated by
reference into Part III.

     Transitional Small Business Disclosure Format: Yes   No  X
                                                       ---   ---

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PART I.

Item 1. Description of Business

     RSI Holdings, Inc. (the "Company") was incorporated in North Carolina in
1978, and until August of 1994 was engaged in the sale of turf care equipment
and supplies.  The Company has three wholly-owned subsidiaries, RSI Holdings of
Florida, Inc. ("RSI Florida"), Sunbelt Distributors, Inc. ("Sunbelt"), and
Wiegmann & Rose International Corp. ("Wiegmann &  Rose").  RSI Florida operated
the Company's turf care equipment sales business in the state of Florida prior
to the cessation of all of the Company's existing business at or near the end
of fiscal 1994.  Sunbelt and Wiegmann & Rose have not conducted any business
activities during the past three years.  For a discussion of the business
proposed to be conducted by the Company, see Part II, Item 6 - Plan of
Operations - Planned Fiscal Year 1997 Activities.

     In July of 1994, the Company was notified by the Jacobsen Division of
Textron, Inc., its primary supplier of turf care products ("Jacobsen"), that
after October 31, 1994, the Company would no longer be authorized to sell
Jacobsen products.  Because substantially all of the Company's assets at that
time were related to the turf care business, and the Company would no longer be
authorized to sell the products of its primary supplier, it was determined by
the Board of Directors of the Company in July of 1994 that the Company should
cease its existing business operations and sell the operating assets of the
Company. Accordingly, the Company ceased substantially all of its existing
business operations by August 31, 1994.  The Company received shareholder
approval for the sale of substantially all of its assets (the "Sale of Assets")
at its annual meeting of shareholders held on January 17, 1995.

     The Company's executive offices are located at 245 East Broad Street,
Greenville, South Carolina 29601 and its telephone number is (864) 271-7171.
At August 31, 1996 the Company had a total of five (5) employees, only one (1)
of which was employed on a full-time basis.

Activities During Fiscal Years 1996 and 1995

     During the year ended August 31, 1996, the Company continued with its
efforts to collect its remaining accounts receivable and recovery of legal fees
paid in connection with the California contingent liabilities described below,
continued with its efforts to settle its contingent liabilities and managed its
remaining assets.  The Company actively marketed its remaining real estate
which resulted in the sale of one of its buildings in Florida.  The Company's
remaining owned real property (a former branch facility) is located in Florida
and is for sale and listed with a real estate broker in Florida.  For further
description of the Sale of Assets and events occurring during fiscal 1996,
reference is made to Part II, Item 6, "Plan of Operations - Property and
Equipment," which is incorporated herein by this reference.

     During the year ended August 31, 1995, the Company collected substantially
all of its accounts receivable, liquidated all of its inventory, liquidated
substantially all of its furniture and equipment, and sold the owned branch 
facility of its Carolinas division and one of its owned branch locations in 
Florida.

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Business Prior to August 31, 1994

     Prior to August 31, 1994, the Company's business consisted of the sale of
turf care products in the southeastern United States through its Carolinas
division and its wholly-owned Florida subsidiary.  The Company's Carolinas
division was headquartered in Shelby, North Carolina, and distributed its turf
care products through three branches located in North Carolina and South
Carolina.  RSI Florida was headquartered in Fort Lauderdale, Florida and
distributed turf care products through three branches located on the west coast
of Florida and southern Florida.  Set forth below is a description of the
operations of the Carolinas division and RSI Florida prior to the cessation of
the Company's existing business on or before August 31, 1994.  Reference is
also made to Part II, Item 6 - "Plan of Operations," which is incorporated
herein by this reference.

     Historical Carolinas Business

     The Company's business in North and South Carolina operated as a division
of the Company. The Carolinas division's major line of turf care equipment was
Jacobsen tractors, mowers and related turf care equipment.  Sales of Jacobsen
products accounted for approximately 69% of net sales of turf care equipment
and supplies by the Carolinas division during fiscal 1994.  Sales of turf care
equipment and supplies by the Carolinas division constituted 41% of the
Company's consolidated net sales during fiscal year 1994.  The principal
customers for the Carolinas division's turf care equipment and supplies were
golf courses, government agencies, and institutional users such as hospitals
and schools.  Turf care products were distributed by the Carolinas division in
southern West Virginia, western Virginia and eastern Tennessee as well as in
North and South Carolina.

     The Company's Carolinas division sold turf care equipment and supplies to
approximately 1,338 customers, and purchased turf care equipment and supplies
for resale from approximately 47 manufacturers, during fiscal 1994.  There were
no customers of the Carolinas division that made up more than 10% of the
Company's total sales during fiscal 1994.  The Carolinas division employed
approximately 10 salespersons, who typically were compensated on a base pay
plus commission arrangement.  The Carolinas division delivered the turf care
equipment and supplies primarily by means of its own trucks.

     The Company's Carolinas division was headquartered in Shelby, North
Carolina, from which location it also distributed turf care equipment and
supplies.  In addition, the Company maintained branch operations for
distribution of its turf care equipment and supplies in a leased facility at
Myrtle Beach, South Carolina until August 31, 1994, and in an owned facility at
Hilton Head, South Carolina until August 1, 1994.  The Company ceased
operations at the Myrtle Beach, South Carolina and Hilton Head, South Carolina
branches during August of 1994.  The facility in Myrtle Beach, South Carolina
was subleased to a successor Jacobsen dealer for the period beginning October 
1, 1994 and ending June 30, 1995.  The Company's lease obligation on that 
facility ended on September 30, 1995.  The facility in Hilton Head, South 
Carolina was sold

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during January 1995 for a selling price of $630,000. The Company incurred 
selling expenses of $58,000 in connection with the sale.

     For further discussion with respect to the operations prior to August 31,
1994 and the liquidation of the assets  of the Carolinas division during fiscal
1996, reference is made to Part II, Item 6 - "Plan of Operations," which is
incorporated herein by this reference.

     Historical Business of RSI Holdings of Florida, Inc.

     RSI Florida, a wholly-owned subsidiary of the Company, was located in Fort
Lauderdale, Florida. This subsidiary sold turf care equipment and supplies, as
well as boat trailers, principally to customers in Florida.  Its principal
lines of turf care equipment were Jacobsen tractors, mowers and related turf
care equipment, and Cushman trucksters and related turf care equipment.  Sales
of turf care products in Florida constituted 59% of the Company's consolidated
sales during fiscal year 1994.  Sales in Florida of Jacobsen products accounted
for approximately 72% of the Company's net sales in Florida of turf care
products during fiscal 1994.  The principal customers for RSI Florida's turf
care products were golf courses, government agencies and institutional users
such as hospitals and schools.

     During fiscal 1994 RSI Florida sold turf care equipment and supplies and
boat trailers to approximately 1,168 customers in Florida, and purchased its
equipment and supplies for resale from approximately 70 manufacturers.  There
were no customers of RSI Florida that constituted more than 10% of the
Company's total sales during fiscal 1994.  RSI Florida employed seven
salespersons, who typically were compensated on a base pay plus commission
arrangement.  RSI Florida delivered turf care equipment primarily by means of
its own trucks, and delivered a small portion of such goods through common
carriers.  This subsidiary's customers were located primarily in Florida and
its business was not considered to be seasonal.

     Through August of 1994, RSI Florida sold turf equipment and supplies
through a distribution center located in Fort Lauderdale, Florida, and through
July of 1994 also operated distribution centers located in Fort Myers and
Tampa, Florida.  During August of 1994, the Fort Myers, Tampa and Fort
Lauderdale distribution centers were closed.

     For a further discussion with respect to operations prior to August 31,
1994 and the liquidation of the assets of RSI Florida during fiscal 1996,
reference is made to Part II, Item 6 - "Plan of Operations," which is
incorporated herein by this reference.

Wiegmann & Rose International Corp.

     Wiegmann & Rose International Corp., a South Carolina corporation, and a
wholly-owned subsidiary of the Company, ceased doing business in October 1986.
Prior to this time, Wiegmann & Rose was principally engaged in the fabrication
and repair of shell and tube heat exchangers, pressure vessels and related 
equipment.  The Company discontinued the Wiegmann & Rose business segment in 
1986.  Further information regarding Wiegmann & Rose, contained

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under the subheading "Legal Proceedings" in Part I, Item 3 hereof is 
incorporated herein by this reference.

     Competition In Historical Businesses

     The Company's Carolinas division competed with various dealers of
comparable products located in North Carolina and South Carolina in the sale of
its turf products directly to golf courses and other users of this equipment.
The Company's management believes that its most significant competitors were a
dealer that distributes Toro turf care products and dealers that distribute
John Deere products.  The Company is unable to estimate the Carolinas
division's share of the market in its area of operations during fiscal 1994,
but believed that competition from dealers of comparable products adversely
affected its market share.

     RSI Florida competed with various dealers of comparable products located
in Florida.  The Company's management believes that RSI Florida's most
significant competitors were two organizations operating in south Florida that
distribute Toro turf care products. The Company is unable to estimate its share
of the market in its area of operations in Florida during fiscal 1994, but
believes that competition from dealers of comparable products adversely
affected its market share during fiscal 1994.

     The various operations within the Company competed primarily on the basis
of the performance of the product sold and the availability of service from its
manufacturer-suppliers.

     Environmental Matters

     The Company is subject to federal, state and local environmental laws and
regulations.  Information contained under the subheading "Legal Proceedings" in
Part I, Item 3 is incorporated herein by reference.  As discussed under the
subheading "Legal Proceedings", the Company has incurred significant expenses
in connection with environmental matters at the property formerly owned by
Wiegmann & Rose.

     Additional contamination was discovered at that property during 1994.  The
extent of the additional contamination, the estimated cost of its remediation,
and Wiegmann & Rose's responsibility for it have not yet been determined but
the clean-up costs for this additional contamination could be significant and
could have a material adverse effect on the financial condition of the Company.
In addition, there can be no assurance that changes in federal, state or local
regulations, changes in regulatory policy, or the discovery of currently
unknown problems or conditions will not require substantial additional
expenditures by the Company.  Similarly, the extent of the Company's liability,
if any, for past failures to comply with laws, regulations and permits
applicable to its operations cannot be determined.

Item 2. Description of Property

     The Company leases approximately 1,545 square feet of floor space at 245
East Broad Street, Greenville, South Carolina used for the Company's principal
executive offices under

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a month-to-month lease arrangement.  Since September 1, 1993 the monthly rental
has been $354.  The office space is leased from Micco Corporation. Micco 
Corporation is owned by four shareholders, all of whom are beneficial owners of
more than 5% of the outstanding common stock of the Company.  One of the 
shareholders is a Vice President and former director of the Company and one of 
the shareholders is the spouse of the Chairman of the Board of Directors and 
Chief Executive Officer of the Company.  The Company believes that this lease 
contains provisions as favorable to the Company as could be obtained from a 
third-party landlord.  The Company intends to continue this lease on a 
month-to-month basis for at least the remainder of fiscal 1997.

     The Company vacated its approximately 70,000 square foot metal and brick
building at East Dixon Boulevard in Shelby, North Carolina that was formerly
utilized as a warehouse, service and office building under a lease that expired
in December 1995 at an annual base rental of $66,000 with a provision to pay
the owner of the building the first $8,000 of any sublet rental received.  The
Company had sublet a portion of this building through the end of the lease
period at a monthly rental of $5,844.  The owner of this building is Paul B.
Porter, formerly the Chairman of the Board of Directors of the Company, and his
sister-in-law.  The Company believes that such lease contains terms at least as
favorable to the Company as would be obtained from unaffiliated landlords.

     The Company vacated its approximately 11,600 square feet building at
Little River, South Carolina leased with an annual rental of $40,800 through
September 1995.  This building consisted of office, showroom, warehouse and
service areas and formerly served as a branch facility.  Pursuant to a sublease
with Jacobsen for this property, the Company received $3,000 monthly for six
months beginning October 1, 1994 and $4,500 monthly for three months beginning
April 1, 1995.

     On July 31, 1996, RSI Florida sold the 2.5 acres of land and a 59,000
square foot building in Fort Lauderdale, Florida for $1,118,770, net of selling
expenses and commissions.  The Fort Lauderdale, Florida property had been
leased to Kilpatrick Turf Equipment on a month-to-month basis for $9,400 per
month terminable on 90 days' notice, pursuant to which the Company was
responsible for the payment of utilities, taxes and building insurance.

     RSI Florida owns 2.03 acres of land and a 22,000 square foot building in
Tampa, Florida.  The Tampa, Florida property is currently leased to Tresca
Industries on a month-to-month basis for $2,400 per month terminable on 90
days' notice, pursuant to which the Company is responsible for the payment of
utilities, taxes and building insurance.  The Tampa, Florida property is listed
for sale with a Florida real estate broker.

Item 3. Legal Proceedings

Wiegmann & Rose

     Environmental Litigation

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     In 1987, Triple A Machine Shop, Inc. ("Triple A") purchased property at 
2801 Giant Road in Richmond, California from Wiegmann & Rose International Corp.
("Wiegmann & Rose"), a wholly-owned subsidiary of the Company.  As part of this
transaction, Wiegmann & Rose agreed to prepare a proposed plan of abatement for
environmental contamination at the property, submit it to the Regional Water
Quality Control Board, and upon approval, implement the abatement plan.  Soon
afterwards, consultants for Wiegmann & Rose prepared a proposed plan of
abatement and submitted it to the Regional Board.  However, the California
Department of Health Services asserted jurisdiction over the matter, demanded
that Wiegmann & Rose investigate the possibility of buried drums at the
property, and initiated a planning process that produced a Remedial
Investigation and Feasibility Study, Remedial Action Plan, and Community
Relations Plan.  Buried drums, which contained various substances including
solvents and other volatile organic compounds ("VOCs") were found and removed
in 1988.  Planning and remediation continued for solvents that had leaked from
the drums and for heavy metals that had also been disposed of at the property.

     In 1988, Wiegmann & Rose filed suit against NL Industries, Inc. ("NL") and
Esselte Pendaflex Corporation ("Esselte"), and alleged that these two
defendants were responsible for the contamination on the property.  NL and
Esselte filed third-party complaints against Triple A.  This litigation was
resolved December 31, 1991 through the entry of a consent decree (the "1991
Decree") that required NL to abate the contamination at Site R on the property
diligently and to the satisfaction of the regulatory agencies.  In effect, NL
took over Wiegmann & Rose's obligations under its agreement with Triple A with
respect to Site R. ("Site R" is the phrase used to describe the portion of the
property formerly owned by Wiegmann & Rose that by 1987 had been targeted by
the regulatory agencies for investigation and remediation.)

     During July of 1993, Triple A sued Wiegmann & Rose and RSI Corporation, the
former parent corporation of Wiegmann & Rose and of the Company, and which is
now known as Delta Woodside Industries, Inc. ("Delta Woodside"), alleging that
Wiegmann & Rose breached the sales contract, breached the covenant of good
faith and fair dealing implied in the contract, and maintained a continuing
nuisance on the property as a result of a failure to abate the contamination
within a reasonable time.  In connection with the distribution of the Company's
Common Stock to the shareholders of RSI Corporation in 1989, the Company
indemnified RSI Corporation against certain types of potential liabilities and
expenses, including those arising in connection with the lawsuit by Triple A.
Triple A's complaint seeks special damages in excess of $2,700,000, general
damages according to proof, and punitive damages of $1,000,000.

     The Triple A action, which was filed in the Contra Costa County, California
Superior Court on July 19, 1993, was removed to the federal district court for
the Northern District of California on August 25, 1993, and Wiegmann & Rose
answered the complaint.  The court granted Wiegmann & Rose's motion to reopen
its previous litigation against NL, which was made with the intention of 
obtaining from the court a determination that NL had complied with the 1991 
Decree (and therefore that Wiegmann & Rose had complied with its obligations 
to Triple A), or, failing that, that NL had failed to comply with the 1991 
Decree (and therefore is responsible for any damages for events following the 
entry of the 1991 Decree).

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     Wiegmann & Rose did not cause any of the contamination on the site.  In
addition, the Company had diligently proceeded to abate the contamination
through the date of the 1991 Decree, and the terms of the 1991 Decree required
NL, not the Company, to abate the contamination on Site R diligently and to the
satisfaction of regulatory agencies.  Based upon these facts, management
believes that the allegations of Triple A are without merit, is contesting the
case vigorously, and filed a motion to dismiss the case during January of 1996.

     In April 1994, the court granted Wiegmann & Rose's motion for partial 
summary judgment, which effectively relieved Wiegmann & Rose from liability 
for events occurring before the entry of the 1991 Decree with respect to Site 
R.  Wiegmann & Rose had argued, and the court apparently agreed, that in the 
1991 Decree Triple A had released Wiegmann & Rose "for any and all liability 
for costs paid and services performed . . . through the date of this Decree 
that are related to remediation of hazardous substances at Site R or to this
action."  For events occurring after the date of its entry, the 1991 Decree 
provides that NL is principally responsible for the remediation of the portion 
of the property known as Site R, although Wiegmann & Rose retains liability in 
the event that NL does not perform.  The 1991 Decree did not address the 
liability of any party with respect to portions of the property outside Site R.

     The parties are currently actively discussing settlement of the lawsuit as
well as resolution of Wiegmann & Rose's responsibility under the purchase 
agreement with Triple A.  There is no assurance, however, that any settlement 
can be reached on terms satisfactory to the Company.

     Since the 1991 Decree, NL has been working towards completion of the
remediation of Site R, and during 1994 requested that the California
Environmental Protection Agency, Department of Toxic Substances Control
("California DTSC") declare that the remediation of Site R is complete.  The
California DTSC has requested additional commitments from NL and Triple A on
future operation, maintenance, and sampling of Site R.  The Company believes
that NL has the financial ability to remediate Site R.  This belief is based
upon the Company's knowledge of the remediation of Site R that NL has performed
to date, and upon the Company's review of the quarterly report of NL for the
fiscal quarter ended June 30, 1996 (the "June 10-Q").  The June 10-Q indicates
that, at June 30, 1996, the working capital of NL was $242,926,000 and that
NL's working capital ratio was 1.8 to 1.0.

     During 1994 NL reported to the California DTSC that it had discovered
additional contamination in the form of elevated levels of petroleum
hydrocarbons or VOCs on the property at issue but adjacent to Site R.  Such
property is now owned by Triple A.  Because the contamination is not within the
boundaries of Site R, NL has taken the position to the California DTSC that it
is not responsible for the remediation of this contamination.  The extent of
the contamination, the estimated cost of its remediation, and Wiegmann & Rose's
responsibility for it have not yet been determined, but the cleanup costs and
legal expenses related to this additional contamination could be significant
and could materially and adversely affect the Company's financial position.
The California DTSC has not yet requested remediation of this area of
additional contamination.  In the event that a claim is asserted against
Wiegmann & Rose in connection with this additional contamination, Wiegmann &
Rose expects to take the position that NL is primarily responsible for the
additional contamination.  However, no assurance can be


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given that Wiegmann & Rose will be successful in this matter and, if the matter
were litigated, the litigation could take years and be very expensive to the 
Company.

     During the year ended August 31, 1996, the Company incurred approximately
$25,000 in legal expenses related to the Triple A lawsuit.

     Asbestos Litigation

     Wiegmann & Rose is also one of numerous defendants with respect to seven 
claims for exposure to asbestos, arising in the normal course of business.  All
seven of these claims have been dismissed without prejudice with respect to 
Wiegmann & Rose, and the applicable statute of limitations has passed with 
respect to at least two of the dismissed claims.  The dismissed claims are made
in the following lawsuits, in each case seeking unspecified damages for injury
allegedly due to asbestos exposure: (i) Brophy v. Abex et al. (filed April 9,
1992), pending in the San Francisco, California Superior Court, seeks damages
for wrongful death allegedly due to asbestos exposure.  Wiegmann & Rose has
been dismissed without prejudice in this action and the applicable statute of
limitations has now passed, barring any subsequent action by the plaintiff
against Wiegmann & Rose. (ii) Canga v. Abex et al. (filed March 18, 1993),
pending in the San Francisco Superior Court, seeks damages for personal
injuries allegedly due to asbestos exposure.  Wiegmann & Rose has been
dismissed without prejudice in this action. (iii) Jordison v. Abex et al.
(filed January 21, 1994), pending in the San Francisco Superior Court, seeks
damages for personal injuries allegedly due to asbestos exposure.  The case
against Wiegmann & Rose has been dismissed without prejudice. (iv) Barnes v.
Abex et al. (filed December 3, 1993), pending in the San Francisco Superior
Court, seeks damages for wrongful death allegedly due to asbestos exposure.
The case against Wiegmann & Rose has been dismissed without prejudice, and the
applicable statute of limitation has passed, barring any subsequent action by
plaintiff against Wiegmann & Rose.  (v) Richardson v. Abex et al. (filed August
5, 1993), pending in the San Francisco Superior Court, seeks damages for
personal injuries allegedly due to asbestos exposure.  The case against
Wiegmann & Rose has been dismissed without prejudice.  (vi) Sorensen v. Abex et
al. (filed July 20, 1993), pending in the San Francisco Superior Court, seeks
damages for personal injuries allegedly due to asbestos exposure.  The case
against Wiegmann & Rose has been dismissed without prejudice.  (vii) Hall v.
Abex et al. (filed February 25, 1994), pending in the San Francisco Superior
Court, seeks damages for personal injuries allegedly due to asbestos exposure.
The case against Wiegmann & Rose has been dismissed without prejudice.

     As to the substantive nature of the asbestos claims, the Company believes 
valid defenses would be available and for that reason the Company has been 
successful in having all seven of these filed actions dismissed without 
prejudice against Wiegmann & Rose.

     No actions involving asbestos are currently pending.

     Insurance

     The Company has contacted its two primary insurance companies relating to 
the environmental and asbestos claims against Wiegmann & Rose described above. 
One insurance 

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company has denied coverage with respect to the environmental claims, but the 
other insurance company has reimbursed the Company for a portion of its
defense costs related to the environmental matter under a reservation of
rights.  The two insurance companies, under a reservation of rights, have
reimbursed the Company for substantially all of its defense costs related to
the asbestos claims.  The Company has received $82,000 from its insurers during
the year ended August 31, 1996, substantially all relating to defense costs
incurred with respect to the asbestos claims.  The Company is communicating
with its insurance company with respect to reimbursement of defense costs paid
by the Company  relating to the environmental claims.  The Company believes
that the likelihood of continued recovery of defense costs relating to these
claims pursuant to its current arrangements with its insurance company is
probable, but there can be no assurance that insurance coverage will be
available to reimburse the Company to any extent for any damages or costs it
must pay as a result of the settlement or adjudication of these claims.

     Holiday Inns, Inc. Litigation
 
     RSI Corporation (now Delta Woodside), the former parent corporation of the
Company, and Sparjax Corporation, RSI Corporation's now-dissolved subsidiary,
are among several defendants in a lawsuit filed on July 29, 1993 by Holiday
Inns, Inc. in the Circuit Court of the Fourth Judicial Circuit for Duval
County, Florida.  In connection with the distribution of the Company's Common
Stock to the shareholders of RSI Corporation in 1989, the Company indemnified
RSI Corporation against certain types of potential liabilities and expenses,
including those arising in connection with the lawsuit by Holiday Inns, Inc.

     This suit seeks indemnification for payments made or to be made by Holiday
Inns, Inc., as the guarantor, to the lessor for obligations under a land lease
agreement allegedly in default.  The lease agreement was commenced in 1967 and
has a term of ninety-nine years.  The lessor under the lease agreement was
originally Fernandina Contractors, Inc., and by assignment is currently Sam
Spevak.  Holiday Inns, Inc. was the original lessee under the lease agreement.
Payments under the lease agreement are the greater of $24,000 annually or the
highest average annual payments during any five-year period during the first
twenty (20) years of the lease, using a percentage of income formula.

     The lessee's interest in the lease agreement has been assigned to a series
of parties including RSI Corporation and Sparjax Corporation.  RSI Corporation 
was the lessee under the lease agreement from June, 1979 to August, 1979, and
Sparjax Corporation was the lessee thereunder from August, 1979 to January,
1981.  The current lessee is American Hotel Investors, Inc. ("AHI").  AHI
allegedly has failed to make lease payments due under the lease agreement and
otherwise to comply with its obligations under the lease agreement.

     Holiday Inns, Inc. has alleged that Sparjax Corporation, which is the 
assignee of the lease agreement from RSI Corporation, is in breach of a written
Indemnification Agreement executed by Sparjax Corporation in favor of Holiday
Inns, Inc. upon its assumption of the lease agreement in 1979.  All of the
outstanding common stock of Sparjax Corporation was acquired by RSI Corporation
during fiscal 1983, and Sparjax Corporation was dissolved by forfeiture during
fiscal 1990.  In connection with such dissolution, no material assets were
distributed from Sparjax 

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Corporation to RSI Corporation.  Other than as described herein, there is no 
contractual relationship whatsoever between RSI Corporation and Holiday Inns, 
Inc.

     On or about September 23, 1992, Sam Spevak filed a lawsuit against Holiday
Inns, Inc. for allegedly failing to pay monthly rent under the lease agreement.
This lawsuit is pending in the Circuit Court of the Fourth Judicial Circuit,
in and for Duval County, Florida.  On May 4, 1993, Sam Spevak filed a Second
Amended Complaint seeking from Holiday Inns, Inc. unpaid rent, unpaid taxes,
interest, attorney fees and costs.  On November 19, 1993, Sam Spevak filed a
Third Amended Complaint in the Court seeking from Holiday Inns, Inc. unpaid
rent, unpaid taxes, attorneys fees and costs, and seeking a declaratory
judgment against Holiday Inns, Inc. to establish whether or not Holiday Inns,
Inc. is liable for costs of repair and maintenance to the leased premises.
Holiday Inns, Inc. amended its complaint to assert similar claims against all
subsequent lessees (including RSI Corporation and Sparjax Corporation) under
the lease agreement, seeking indemnification against sums paid or to be paid to
Sam Spevak pursuant to his lawsuit.

     The most recent activity in the case has been a cross-claim filed by 
Mr. Donald Roberts against all assignees of W. M. R., Inc., including RSI 
Corporation and Sparjax Corporation.  Mr. Roberts was an individual guarantor 
of W. M. R., Inc.'s obligations under the land lease.  Counsel for RSI 
Corporation and Sparjax Corporation have moved to dismiss Mr. Roberts' 
cross-claims and the court has granted these motions, without prejudice.  
Counsel for Sparjax Corporation and RSI Corporation have informed the Company 
that the cross-claims do not raise any new substantive issues, but merely seek 
indemnification from all assignees in the event that Mr. Roberts is required 
to pay Holiday Inns, Inc. on his individual guaranty.

With respect to RSI Corporation's maximum exposure in this case, Holiday  Inns
has asserted that RSI Corporation and all other lessees are obligated to
reimburse it $259,201 for rent it paid to the landlord as a result of AHI's
failure to pay under the lease.  This amount, however, only represents
delinquent rent through October 13, 1993, because Holiday Inns contends  that
the lessee's obligations under the lease terminated on that date as a result of
James "Duke" Williams evicting AHI on behalf of the landlord.  Mr. Spevak
claims, however, that as of January, 1995, he is entitled to past monthly 
rental and interest (from October 13, 1993 through December 20, 1994) of 
$82,289 plus future monthly rental through the end of the lease term in 2068 of
$1,834,565 (which sum represents the present value using a 6.5% discount rate).
If Mr. Spevak is successful in proving his claim, RSI Corporation's exposure 
includes these latter amounts. In addition, should the court determine that 
Holiday Inns, Inc. has an obligation to pay the cost of repairs and maintenance
incurred to date and throughout the balance of the lease term, the amount of 
such costs could be substantial but cannot be quantified with any reasonable    
degree of accuracy. The Company believes the existing motel property is in a
state of disrepair such that it is not commercially usable.  The City of
Jacksonville has recently sent notice, presumably to all parties involved in
this lawsuit, threatening to condemn the property and demolish the entire
structure.  If that occurs, and the Court determines that the lessees have an
obligation to maintain the property during the lease term, RSI Corporation's
exposure could also include the costs of demolition and the expense of
rebuilding the hotel.  This liability, of course, cannot be accurately estimated
at this time, but no doubt involves a very substantial amount.


                                      12
<PAGE>   13



     RSI Corporation denies any liability to Holiday Inns, Inc. and intends to
defend this matter vigorously.  Upon a motion of counsel for RSI Corporation,
Holiday Inns, Inc.'s claims against RSI Corporation were dismissed without
prejudice, but Holiday Inns, Inc. has filed an Amended Complaint to reinstate
certain of its claims, and to add a claim for equitable subrogation, against
RSI Corporation and Sparjax Corporation.  Counsel for RSI Corporation and
Sparjax Corporation has answered the equitable subrogation claim, and has moved
for dismissal with prejudice with respect to the claims that have previously
been dismissed.

     The deposition of James "Duke" Williams, a critical witness in the case, 
has now been taken.  Mr. Williams was involved in a contract to assume the lease
from Holiday Inns, Inc., which contract was later canceled by Holiday Inns,
Inc.  The parties are presently scheduling the depositions of other important
fact witnesses.  These include Mr. Spevak and several of the other officers of
Holiday Inns, Inc. who were involved in the negotiations to cancel the lease
with Mr. Williams.  The mediation conference held in January, 1995 was not
successful.  No trial date has been set.

     If found liable for any sum as a result of Holiday Inns, Inc.'s claims, the
Company believes RSI Corporation and Sparjax Corporation would have a claim in
equity against AHI, the current and allegedly defaulting lessee under the lease
agreement, and its principal shareholders, who in the aggregate guaranteed
AHI's obligations under the lease for up to $150,000.  AHI is a private
corporation and the Company has no information regarding the financial ability
of AHI or its principal shareholders to perform AHI's obligations under the
lease or to reimburse any third party for any payments made under the lease as
a result of the lawsuit described above.

     The ultimate outcome of this matter is not known.  No provision has been 
made in the accompanying financial statements for any liability which may result
from this matter.

     Other Litigation

     On January 12, 1995, a Mr. Cesar A. Cuenca served a complaint against the
Company in the 11th Judicial Circuit Court, Dade County, Florida seeking
damages in excess of the minimal jurisdictional amount of the Court, exclusive
of costs and interest, and demanding costs of the action together with such
further relief as the Court shall deem fit.  The Plaintiff alleges that he was
injured while operating a vehicle that was sold by the Company.  The Complaint
also named the manufacturer of the vehicle.  The manufacturer has agreed to
provide full and complete indemnification to the Company based on the facts
known to date.  There has been no suggestion in the litigation that the Company
did anything other than sell what is alleged to have been a defective product.
Accordingly, unless additional allegations are made against the Company, the
Company expects to continue to receive full indemnity and defense from the
manufacturer.  The plaintiff recently amended the complaint to add the School
Board of Dade County as a defendant for negligent maintenance of the subject
premises.  The Company believes, based on the arrangements with the
manufacturer of the vehicle and the Company's own insurance, that there is no
known exposure to the Company from this litigation.


                                      13
<PAGE>   14


        On February 4, 1994, a Mr. Everette Moncur and Edwina Moncur, his wife, 
served a complaint against the Company in the 17th Judicial Circuit Court, 
Broward County, Florida seeking damages in excess of $15,000 for injuries 
sustained while operating a turf care product sold by the Company.  The 
complaint also named the manufacturer of the product.  The manufacturer and its
insurance carrier have accepted defense of the Company regarding this matter.  
The Company believes, based on the arrangements with the manufacturer, the 
manufacturer's insurance company, and the Company's own insurance, that this 
action should not have a material adverse effect on the Company's financial 
position.

Item 4. Submission of Matters to a Vote of Security Holders

        No matters were submitted to a vote of securities holders during the
fourth quarter of the Company's 1996 fiscal year.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

        The Company's Common Stock is thinly traded in the over-the-counter 
market by NASDAQ.  The high and low bid quotations of the Company's Common 
Stock are set forth below for the fiscal quarters indicated, as reported by
NASDAQ for such periods.  These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent 
actual transactions.

<TABLE>
<CAPTION>

                                           1996                      1995
                                           ----                      ----


                 Fiscal               High       Low            High       Low
                 ------               ----       ---            ----       ---
                 <S>                   <C>       <C>             <C>       <C>
                 First Quarter         .08       .08             .18       .05
                 Second Quarter        .08       .06             .18       .07
                 Third Quarter         .07       .06             .08       .07
                 Fourth Quarter        .07       .06             .08       .07
</TABLE>

        As of October 4, 1996, the Company had approximately 685 shareholders of
record.

        The Company paid no cash dividends with respect to its Common Stock 
during fiscal 1996, 1995 and 1994, and does not intend to pay cash dividends 
in the foreseeable future.

Item 6. Plan of Operations

Sale of Assets

        As discussed above, the Company ceased substantially all of its existing
business operations by August 31, 1994.  The Company received shareholder
approval of its plan to sell substantially all of the Company's assets (the
"Sale of Assets") at its annual meeting of shareholders held on January 17,
1995.

                                      14
<PAGE>   15

     As discussed below, the Sale of Assets plan has now been substantially
consummated.  The holders of an aggregate of 100,823 shares of Common Stock
dissented from the Sale of Assets, endorsed and returned their shares of the
Company's common stock to the Company and demanded payment for their shares of
the Company's common stock.  These holders are entitled under North Carolina
law to receive the "fair value" of their shares of Common Stock as determined
in accordance with North Carolina law, plus interest.  The Company has
determined the "fair value" of these shares to be $.21 per share and
accordingly is making an offer of $.21 per share plus 8% interest from July 29,
1994 to the dissenting shareholders.  These dissenting shareholders have not
yet indicated their acceptance of the Company's offer.  The Company intends to
pay the dissenting shareholders for their shares of the Company's common stock
in accordance with North Carolina law upon acceptance of the Company's offer by
the dissenting shareholders.  Under North Carolina law, dissenters may reject
the Company's offer and commence a court proceeding to determine the fair value
of the shares and accrued interest.

     On July 31, 1996, the Company completed the sale of its property in Fort
Lauderdale, Florida.  Because of the value of this property in relation to the
Company's remaining unliquidated assets, the Company believes that it has
substantially consummated its Sale of Assets plan.  However, the Company has
been unable to sell its remaining real property in Tampa, Florida.  The Company
expects to continue to offer the property in Tampa, Florida for sale for a
reasonable price, but can give no assurance that it will be successful in its
sales efforts.  In addition, the Company has several contingent liabilities
that might not be resolved for several years.

New Business Plans

     The Company currently intends to pursue either purchasing the common stock
of an existing business or starting up a small specialized consumer finance
business that would originate and sell consumer finance receivables,
substantially all of which would be home improvement loans secured by liens on 
improved property.  In addition, the Company plans to offer conventional loans 
under Title I "look-alike" programs that in some cases permit the loan proceeds
to be used for purposes other than home improvements.  See "Planned Fiscal Year
1997 Activities" below.


Adjustment to Liquidation Basis

     Because the Company decided in 1994 that it should cease its existing 
business operations and sell substantially all of its operating assets, the
Company has reported its financial position on the liquidation basis of 
accounting during the years ended August 31, 1994 through August 31, 1996.  In 
the liquidation basis of accounting, assets are valued at their net realizable 
value (rather than at their net historical cost), and liabilities include 
estimated costs associated with carrying out the sale of substantially all of 
the assets of the Company.

     At August 31, 1996, the Company substantially completed its Sale of Assets
plan with the sale of its Fort Lauderdale, Florida property.  The remaining 
step in the implementation of the 

                                      15
<PAGE>   16

plan is the sale of the Tampa real estate.  The real estate in Tampa, Florida 
that relates to the discontinued business is shown in the Company's financial 
statements at its estimated fair value.  Net assets in liquidation at August 
31, 1996 have been reduced by the estimated cost of liquidation expected to be 
incurred during the remaining period of liquidation (estimated to be December 
31, 1996) of $155,000.

     The Company's activities during fiscal years 1996 and 1995 have consisted
primarily of implementing the Sale of Assets.  The following paragraphs
describe such activities and the composition of the net assets of the Company
as at August 31, 1996.

     The Company's estimate of net assets in liquidation increased $142,000
during the year ended August 31, 1996 from the estimated value at the end of
fiscal 1995.  The principal reason for the increase in net assets in
liquidation was the increase in rental income estimated to be received from the
lessees during the period of liquidation relating to the property located in
Fort Lauderdale, Florida and Tampa, Florida.

     At August 31, 1996, the Company had accrued $259,000 to record all known
expenses incurred through August 31, 1996, but not yet paid.  In addition to
those expenses that have been accrued at August 31, 1996 but not paid,  the
Company's estimated costs expected to be incurred during the remaining period
of liquidation from August 31, 1996 through December 31, 1996 were $155,000 as
compared to $544,000 expected to be incurred from August 31, 1995 through
December 31, 1996.  This reduction of $389,000 during the year ended August 31,
1996 resulted primarily from payments made and adjustments to expense
categories based on actual costs (net of estimated rental income) as compared
to costs estimated at August 31, 1995 to be incurred during the remaining
period of liquidation.  Costs expected to be incurred in connection with the
consummation of the Sale of Assets from August 31, 1996 through the remainder
of the liquidation period include anticipated legal fees ($28,000), accounting
and auditing fees ($25,000), salaries ($46,000), lease commitments ($7,000), 
property taxes ($3,000), insurance and other overhead items ($8,000), 
shareholder relation expenses ($5,000), and the Company's estimate of 
unforeseen costs ($33,000) that the Company expects to incur during the 
remaining liquidation period. These amounts are only estimates, however, and 
there is no assurance that management will be able to complete the Sale of
Assets during this period or that known and unknown contingencies will not 
require the Company to make significant additional expenditures.

     Cash and Cash Equivalents

     Cash and cash equivalents in the amount of $2,256,000, as of August 31,
1996 included United States treasury bills with a maturity of three months when
purchased and having a cost basis of $2,230,000.  Cash in excess of the amounts
invested in United States treasury bills was invested as available in a bank
master note during fiscal 1996 and 1995.  The bank master note could be
liquidated by the Company to meet its cash needs on a daily basis.  The Company
earned $68,000 on its investments during the year ended August 31, 1996.

     Accounts Receivable

                                      16
<PAGE>   17


     As of August 31, 1996, the Company's estimate of the net realizable value
of total accounts receivable was $16,000, as compared to $27,000 at August 31,
1995.  Collections of accounts receivable from former customers during the year
ended August 31, 1996 were approximately $26,000, reflecting collections in
excess of the Company's estimate of the net realizable value of these accounts
receivable as at the end of the 1995 fiscal year.  The remaining accounts
receivable as at August 31, 1996 have a face value of $81,000, but have been
reduced by an aggregate of $65,000 to reflect the Company's estimate of the net
realizable value of the accounts receivable.  Of these remaining accounts
receivable, accounts receivable with a face value of $65,000 were due from
customers, and the remaining $16,000 in face value of accounts receivable
consists of miscellaneous receivables arising in the ordinary course of
business.

     The Company is using its best efforts to collect the remaining amounts
owed to it.  There is no assurance, however, that the Company will be
successful in its collection efforts.  The Company has experienced difficulty
in collecting the remaining accounts receivable due from its customers.
Amounts due from customers at August 31, 1996 of approximately $65,000 in face
value of accounts receivable are in the hands of attorneys to collect.  The
fees of such attorneys are up to approximately 40% of the amount recovered.
The Company will attempt to recover its collection costs from the customers,
but there is no assurance that it will be successful in these efforts.  The
remaining $16,000 in face value of accounts receivable includes $8,000 of sales
tax deposits made to the State of Florida that are being reduced each month
through sales tax collected on rents charged on the remaining unsold property.
The uncollected amount of sales tax deposits remaining at the expiration of the
lease period should be refunded by the State of Florida.  The remaining $8,000
of miscellaneous receivables are not past due, and are subject to the Company's
collection efforts.

     Property and Equipment

     The Company listed its property in Fort Lauderdale, Florida for sale
during April of 1994, and sold the property on July 31, 1996 for the aggregate
sum (before selling expenses) of $1,206,190.  The Company incurred selling
expenses of approximately $87,000 in connection with such sale.

     The Company's remaining unsold real property  is owned by RSI Florida, and
consists 2.03 acres of land with a 22,000 square foot building in Tampa,
Florida.  This property was utilized by RSI Florida as warehouse, office and
showroom space for the sale of turf care equipment prior to the cessation of
the Company's business activities in August of 1994.  The property has an
estimated liquidation value of $430,000 (net of estimated selling expenses),
and is not subject to any debt.  The estimated liquidation value is based in
part upon an independent appraisal of the Tampa property.  This appraisal was
originally conducted on March 21, 1994 and updated effective October 10, 1995
(indicating a market value of $530,000) and further updated effective August
22, 1996, to reduce the market value for the property to $475,000 (the
"Appraisal").  At August 31, 1995, the Company had valued the Tampa property at
its estimated net recoverable value of $472,000.  It has now written down the
net recoverable value of the property to reflect the reduction in the updated
Appraisal.  The decrease during fiscal 1996 in the net realizable value of
property of $10,000 is net of the excess net selling price over estimated net



                                      17
<PAGE>   18


realizable value of the Fort Lauderdale, Florida property of $32,000.  The
Appraisal and market values have not been independently verified by the
Company.  The Appraisal assumes a one year marketing time for the property, and
that certain repairs to the interior partitions are performed by the Company as
well as various other material assumptions set forth in the Appraisal, as basis
for the estimated value of the property.  The reduced market value of the 1996
appraisal takes into consideration the extended length that the property has
been on the market (since early 1995) and  sluggish sales in the area.  Because
the interior layout of the building is likely to be changed by an ultimate
purchaser, the Company will probably not make all the repairs assumed in the
updated Appraisal. There is no assurance that the Company will realize a sales
price for the property comparable to the value estimated for the property by
the Appraisal or that the other assumptions set forth in the Appraisal will
prove to be accurate to any extent.

     The Company has been unable to sell its Tampa property to date at a price
deemed acceptable to the Company, but is actively engaged in marketing the
property.  The property is listed for sale with a Tampa, Florida commercial
real estate broker at a price somewhat higher than the market value indicated
by the Appraisal for the property.  During fiscal 1996 the Company engaged in
negotiations with one serious potential buyer and during fiscal 1995 the
Company engaged in negotiations with two serious potential buyers out of a
number of interested parties, but none of those potential buyers now appears
likely to consummate a purchase.  In addition, Tresca Industries, the current
lessee of the Tampa property, continues to express an interest in the property,
but has been unwilling to offer a price that is acceptable to the Company.

     The Company believes, in light of the fact that its current liquidity
requirements are covered by its existing cash and cash equivalents, that it is
in the best interest of the Company to continue to hold its property in an 
attempt to realize its market value.  The Company believes that, given 
adequate marketing time, there is a reasonable likelihood that the Company will
be able to realize a sale price comparable to the value for the property 
indicated by the updated Appraisal.  However, there can be no assurance that 
the Company will be successful in locating a buyer for the property at such 
price.  The low number of showings of the property is evidence that sale 
conditions for comparable real property has apparently been slow.  Further, in 
the event expenses and costs arising out of the Company's contingent 
liabilities or other expenses of liquidation exceed its liquid resources, the 
Company may be forced to reduce the price of this property in order to induce 
a rapid sale.  There is no assurance that any buyer will be available even at 
such reduced price.  See Part I, Item 3 - "Legal Proceedings."

     Leased Properties

     For a description of the Company's arrangements with respect to its
current and prior lease obligations, as well as its income from leasing
activities, reference is made to Part I, Item 2. - "Description of Property,"
which is incorporated herein by this reference.

     Planned Fiscal Year 1997 Activities

During fiscal 1997, the Company will continue with its efforts to sell its
office and warehouse facility in Tampa, Florida and will continue with its
efforts to collect the remaining 

                                      18
<PAGE>   19

accounts receivable.  Proceeds from these activities will be applied first to 
the payment of expenses related to the realization of these proceeds, next to 
pay or make provisions for the payment of contingent liabilities of the Company
as they are quantified, and next to pay "fair value" to the holders of the 100,
823 shares of Common Stock dissenting from the Sale of Assets.  Since the 
amount required to settle the contingent liabilities cannot be determined,
there is no assurance that the Company's proceeds from the sale of its 
remaining assets will be sufficient to cover these expenses.

     The Company currently intends to use the assets, if any, remaining after
the consummation of the Sale of Assets and the payment or provision for payment
of the foregoing items to acquire or commence another business enterprise.  As
discussed earlier, the Company currently intends to pursue either purchasing
the common stock of an existing business or starting up a new business that
would originate and sell consumer finance receivables, substantially all of
which are home improvement loans secured by liens on improved property.  The
Company expects that this new business would operate at a loss during the first
two years, but based on the information now available to it, expects the new
business to operate at a modest profit by the third year.  There can be no
assurance that these goals can be achieved.  In connection with these plans,
during September of 1996 the Company employed an individual who is
knowledgeable in this industry. The Company intends for this individual to hire
senior executives who would set up the new business marketing and underwriting
capabilities.  If the Company is successful with its plans to form this new
business, the Company plans to open two sales offices to target certain major
metropolitan areas of the Carolinas during fiscal 1997.  The initial office in
Greenville, South Carolina would house sales, underwriting and administrative
personnel.  Each sales office would be staffed by a loan closer.  Additional
personnel would be added when and if the volume of loans increases.  The
Company estimates that the new business would have approximately 8 employees at
August 31, 1997.

     The consumer finance market is highly competitive and fragmented.  The
Company would compete with a number of finance companies that provide financing
to individuals who may not qualify for traditional financing, as well as
established home improvement lenders, existing mortgage brokers and bankers
that offer multi-purpose second mortgages and other Title I lenders.  To a
lesser extent, the Company would compete with commercial banks, savings and
loan associations, credit unions, insurance companies, and captive finance arms
of major manufacturing companies that may apply more traditional lending
criteria.  Many of these competitors or potential competitors are substantially
larger and have significantly greater capital and other resources than the
Company.

     This new business plans to offer Title I home improvement loans ("Title I
Loans") under the Title I program administrated by the Federal Housing
Administration ("FHA").  In order to offer Title I Loans, it will be necessary
for the Company to obtain a Title I license.  The Title I program was
established by Title I of the National Housing Act of 1934.  Loans made under
the Title I program are 90% guaranteed by the United States Department of
Housing and Urban Development ("HUD").  The Company would acquire its FHA Title
I license either by the acquisition of an existing company that has previously
been licensed or by applying directly for a FHA Title I license.  In addition,
the Company plans to offer Conventional Loans to certain 

                                      19
<PAGE>   20
        
qualified borrowers under Title I "look-alike" programs that in some case  
permit the loan proceeds to be used for purposes other than home improvements. 
In addition to the FHA Title I license, the Company would have to apply for
licenses to operate under the banking laws of each State in which this business
chooses to operate. There can be no assurance that any such licenses may be 
obtained on a timely basis or at all.  In addition, the new business would be 
subject to ongoing monitoring by regulatory authorities and the failure to 
comply with applicable regulations could result in the forfeiture of licenses
on which the business is dependent.

     The Company plans to attempt to sell all of its loans on the secondary
market without recourse to a licensed Title I wholesale buyer.  The Company
does not have the capital that would be necessary to make a significant volume
of loans unless it is able promptly to sell its loans on the secondary market.
There can be no assurance that the secondary market for loans will be
available.  Adverse changes in the secondary market could impair the Company's
ability to originate and sell loans on a favorable or timely basis.  Delays in
the sale of a loan pool beyond a quarter-end could result in losses for such
quarter.  If the Company were unable to sell its loans on the secondary market,
the Company's growth could be materially impaired and the Company's results of
operations and financial condition could be materially adversely affected.  See
Liquidity and Capital Resources - Capital Requirements for New Business.

     A substantial portion of the planned new business is dependent on the
continuation of the Title I Loan program, which is federally funded.  The Title
I Loan program provides that qualifying loans are eligible for FHA insurance.
In August of 1995, bills were introduced in both houses of the United States 
Congress that would, among other things, abolish HUD, reduce federal spending 
for housing and community development activities and eliminate the Title I 
Loan program.  Other changes to HUD have been proposed, which, if adopted, 
could affect the operation of the Title I Loan program.  Discontinuation of or 
a significant reduction in the Title I Loan program or the Company's authority 
to originate loans under the Title I Loan program could have a material 
adverse effect on the Company planned new business.

Liquidity and Capital Resources

     Anticipated Liquidity Requirements

     As discussed below under "Cash and Cash Equivalents" and "Debt 
Arrangements," the Company has substantial cash liquidity and anticipates that 
such capital resources will be sufficient to enable the Company to pay ordinary
expenses expected to arise during the remaining period of liquidation of the 
Company's assets and for the purchase or commencement of the potential new 
business and to provide working capital for this business.  There can be no 
assurance, however, that the Company will be able to sell its remaining asset 
consisting of real property in Tampa, Florida at its appraised value.  The 
Company is unable to predict when the Tampa property will be sold, but has 
estimated costs during the remaining period of liquidation based on such sale 
occurring by December 31, 1996.

     In addition, the Company will continue to incur legal expenses relating to
its contingent liabilities.  The Company plans to continue to attempt to settle
its contingent liabilities during

                                      20
<PAGE>   21

fiscal 1997, but it cannot estimate when these will be settled or the ultimate  
outcome of the lawsuits or environmental matters described above under Item 3 of
Part I, "Legal Proceedings" or of any unknown contingencies.  There can be no
assurance that the Company's cash balances will be sufficient to allow it to
meet its recorded liabilities and any known or unknown contingent liabilities. 
The ultimate outcome of these contingencies is not known.  No provision has been
made in the accompanying financial statements for any liability which may result
from these matters, except for an estimate of the legal costs that the Company
expects to incur in the defense of these matters.

     Cash and Cash Equivalents

     Cash and cash equivalents in the amount of $2,256,000 as of August 31, 1996
included United States treasury bills with a maturity of three months when
purchased and having a cost basis of $2,230,000.  Cash in excess of the amounts
invested in United States treasury bills is invested as available in a bank
master note, which may be liquidated by the Company to meet its cash needs on a
daily basis.  The Company earned $68,000 on its investments during the year
ended August 31, 1996.

     Debt Arrangements

        The Company's $500,000 revolving unsecured line of credit (the "Line of
Credit") expired on December 31, 1995.  The Line of Credit was not used by the
Company.  The Company does not believe that it will need a line of credit
during the remaining period of liquidation, but will need sources of credit to
finance its potential new business.

        Capital Requirements for New Business

        If the Company is successful in acquiring or forming a consumer finance
company, it intends to initially invest $575,000 in this new business which
would operate as a wholly-owned subsidiary of the Company.  In addition to its
capital investment, the Company plans to attempt to make arrangements with a
bank for a warehouse loan credit facility of up to $1,000,000 to finance the
making of the consumer loans.  It also plans to attempt to arrange an
additional borrowing facility of $500,000 that would be necessary to finance
the operations of this business if the finance business grows.  Given its cash
and cash equivalents position, the Company believes that it has the borrowing
capacity to obtain such loans.  There can be no assurance, however, that the
Company will be able to obtain such loans on satisfactory terms.  Failure to
obtain such financing could materially and adversely affect the ability of this
business to grow.

Item 7. Financial Statements

        The response to this Item is set forth on page F-2 and submitted as a
separate section of this report.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
           None.

                                      21
<PAGE>   22


PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act

Item 10. Executive Compensation

Item 11. Security Ownership of Certain Beneficial Owners and Management

Item 12. Certain Relationships and Related Transactions

         Information required under Items 9, 10, 11 and 12 of Part III is
incorporated herein by reference to the portions of the definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior
to 120 days following the end of the Company's fiscal year.

<TABLE>

Item 13.      Exhibits, and Reports on Form 8-K
  <S>         <C>
   (a)        Listing of Exhibits

  3.1         Articles of Incorporation of RSI Holdings, Inc., as amended:
              Incorporated by reference to Exhibit 3.2 and 3.2.2 to the 
              Registration Statement on Form S-4 of RSI Corporation and Porter 
              Brothers, Inc., File No. 33-30247 (the "Form S-4").

  3.1.1       Articles of Amendment and Certificate of Reduction of Capital of
              Porter Brothers, Inc.: Incorporated by reference to Exhibit 4.1 
              to the Form 8-K of the Registrant filed with the Securities and 
              Exchange Commission on November 28, 1989, File No. 0-7067.

  3.2.1       By-laws of RSI Holdings, Inc., as amended: Incorporated by
              reference to Exhibit 3.1.1 to the Form S-4.

  3.2.2       Amendments to By-laws.

  4.1         See Exhibits 3.1, 3.1.1, 3.2.1 and 3.2.2.

  4.1.1       Specimen of Certificate for RSI Holdings, Inc., common stock:
              Incorporated by reference to Exhibit 4.1.2 to the Form S-4.

  *10.1       RSI Holdings, Inc., Stock Option Plan, including an amendment:
              Incorporated by reference to Exhibit 10.9 to the Form 10-K of the
              Registrant filed with the Securities and Exchange Commission for 
              the fiscal year ended August 31, 1990, File No. 0-18091.

</TABLE>

                                      22
<PAGE>   23

<TABLE>
  <S>         <C>
  *10.1.1     Amendment to Stock Option Plan: Incorporated by reference to 
              Exhibit 10.9.1 to the Form 10-K of the Registrant filed with the 
              Securities and Exchange Commission for the fiscal year ended 
              August 31, 1992, as amended, File No. 0-18091.

  10.2        Agreement by and between the Company and Treadco, Inc. dated as of
              February 6, 1996: Incorporated by reference to Exhibit 10.1 to 
              the Form 10-QSB of the Registrant filed with the Securities and 
              Exchange Commission for the quarter ended February 29, 1996, 
              File No. 0-18091.

  10.3        Letter Agreement by and between the Registrant and Tresca 
              Industries dated September 8, 1994:  Incorporated by reference 
              to Exhibit 10.18 to the 1994 10-K.

  10.4        Agreement by and between the Registrant and Carl Lipscomb and his
              assigns dated September 16, 1994:  Incorporated by reference to 
              Exhibit 10.29 to the 1994 10-K.

  10.5        RSI Holdings, Inc. Incentive Stock Award Plan, including an
              amendment:  Incorporated by reference to Exhibit 10.8 to the 
              Form 10-K of the Registrant filed with the Securities and
              Exchange Commission for the fiscal year ended August 31, 1990, 
              File No. 0-18091 (the "1990 10-K").

  10.6        Amendment to Incentive Stock Award Plan:  Incorporated by 
              reference to Exhibit 10.8.1 to the 1992 10-K.

  21.         Subsidiaries of the Registrant.

  23.         Consent of Ernst & Young LLP, Independent Auditors.

  27.         Financial Data Schedule (For SEC use only)

  99.         Consent Decree and Judgment dated December 31, 1991 entered by the
              United States District Court for the Northern District of 
              California in Wiegmann & Rose International Corp., a South 
              Carolina corporation, plaintiff, v. NL Industries, Inc., a New 
              Jersey corporation, and Esselte Pendaflex Corporation, a New York
              corporation, defendants; NL Industries, Inc., a New Jersey 
              corporation, and Esselte Pendaflex Corporation, a New York 
              corporation, third party plaintiffs, v. Triple A Machine Shop, 
              Inc., a California corporation, third party defendant, C.A. No. 
              C-88-4817 FMS:  Incorporated by reference to Exhibit 28.1 to
              the Registrant's Form 8-K, filed with the Securities and Exchange
              Commission on January 3, 1992, File No. 0-18091.
</TABLE>

* Management contract or compensatory plan required to be filed as an exhibit
pursuant to Item 13 of Form 10-KSB.

     (b) Reports on Form 8-K:

                                      23
<PAGE>   24

     There were no reports on Form 8-K filed during the fourth quarter of the
fiscal year ended August 31, 1996.


                                      24
<PAGE>   25

                                   SIGNATURES




In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



RSI HOLDINGS, INC.                   TITLE



/s/ Buck Mickel       October 22, 1996   Chairman of the Board and 
--------------------------------------     Chief Executive Officer 
Buck Mickel                (Date)          (Principal Executive Officer)



In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.


/s/ Buck Mickel       October 22, 1996   Director, Chairman of the Board and
--------------------------------------     Chief Executive Officer
Buck Mickel                (Date)          (Principal Executive Officer)
       

/s/ C. C. Guy         October 22, 1996   Director
--------------------------------------
C. C. Guy                  (Date)


/s/ Charles M. Bolt   October 22, 1996   Director
--------------------------------------
Charles M. Bolt            (Date)


/s/ Joe F. Ogburn     October 22, 1996   Vice President and Treasurer
--------------------------------------    (Principal Financial and 
Joe F. Ogburn              (Date)         Accounting Officer)


                                      25
<PAGE>   26














                         Annual Report on Form 10-KSB
                                      
                  Item 7, Item 14(a)(1) and (2), (c) and (d)
                                      
                         List of Financial Statements
                                      
                             Financial Statements
                                      
                          Year Ended August 31, 1996
                                      
                              RSI Holdings, Inc.
                                      
                          Greenville, South Carolina
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                     F-1
<PAGE>   27

                              RSI Holdings, Inc.
                                      
                      Form 10-KSB-Item 14(a)(1) and (2)
                                      
                        Index of Financial Statements




The following consolidated financial statements of RSI Holdings, Inc. are
included in Item 7:

        Consolidated statements of net assets in liquidation - August 31, 1996

        Consolidated statement of changes in net assets in liquidation - Years
        ended August 31, 1996 and 1995

        Notes to consolidated financial statements - August 31, 1996




















                                     F-2
<PAGE>   28
                        Report of Independent Auditors


The Board of Directors and Shareholders
RSI Holdings, Inc.

We have audited the accompanying consolidated statement of net assets in
liquidation of RSI Holdings, Inc. as of August 31, 1996, and the related
consolidated statement of changes in net assets in liquidation for the two
years then ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

As more fully described in Note 1, the Board of Directors of the Company
decided in 1994 to cease its remaining business operations and sell its
operating assets.  As a result, the Company changed its basis of accounting as
of August 31, 1994 from the going concern basis to the liquidation basis.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated net assets in liquidation of
RSI Holdings, Inc. at August 31, 1996, and the changes in consolidated net
assets in liquidation for the two years then ended, in conformity with
generally accepted accounting principles.




                                                ERNST & YOUNG LLP


October 9, 1996




                                     F-3
<PAGE>   29
                              RSI Holdings, Inc.
                                      
             Consolidated Statement of Net Assets in Liquidation
                                      
                               August 31, 1996


<TABLE>
<S>                                                     <C>
ASSETS                                                  $2,256,000
Cash and cash equivalents                                   16,000
Accounts receivable                                        430,000
Real property (Notes 2 and 5)                           ----------
                                                         
                                                         2,702,000

LIABILITIES
Trade accounts payable                                       3,000
Accrued expenses (Note 3)                                  259,000
Estimated costs during the period of liquidation           155,000
                                                        ----------

                                                           417,000

Contingencies (Note 10)                                 ----------

Net assets in liquidation (Note 1)                      $2,285,000
                                                        ==========
</TABLE>


See accompanying notes.















                                     F-4
<PAGE>   30
                              RSI Holdings, Inc.
                                      
               Consolidated Statement of Changes in Net Assets
                                in Liquidation





<TABLE>
<CAPTION>
                                                                                   YEAR ENDED AUGUST 31
                                                                                 1996                1995
                                                                         -------------------------------------- 
<S>                                                                          <C>                 <C>
Net assets in liquidation at beginning of year                               $ 2,143,000         $ 1,930,000

Changes in net assets in liquidation attributed to:
  Cash and cash equivalents                                                      784,000           1,144,000
  Trade accounts payable                                                           2,000             574,000
  Accrued expenses                                                               110,000             338,000
  Estimated costs during remaining period of liquidation                         389,000           1,024,000
  Notes payable and capital lease obligation                                          -            2,213,000
  Inventory floor plan debt resulting from sale of inventory
    to supplier                                                                       -            4,123,000
  Deferred compensation                                                               -               54,000
  Accounts receivable as a result of collections                                 (11,000)         (1,734,000
  Inventory resulting principally from sale of inventory
    to suppliers and other dealers                                                    -           (5,873,000)
  Sales of property and equipment                                             (1,119,000)         (1,648,000)
  Change in net realizable value of real property                                (10,000)                 -
  Other assets                                                                    (3,000)             (2,000)
                                                                         -------------------------------------- 

Increase in net assets in liquidation                                            142,000             213,000
                                                                         -------------------------------------- 

Net assets in liquidation at end of year (Note 1)                            $ 2,285,000         $ 2,143,000
                                                                         ====================================== 
</TABLE>


See accompanying notes.











                                     F-5
<PAGE>   31
                              RSI Holdings, Inc.


                  Notes to Consolidated Financial Statements

                               August 31, 1996



1.  SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

As of August 31, 1994, the Company adopted the liquidation basis of accounting. 
RSI Holdings, Inc. (the "Company") had experienced significant recurring
operating losses, discontinued its outdoor power equipment product line in
1992, and was notified in July of 1994 by its primary supplier of turf care
products that after October 31, 1994, the Company would no longer be authorized
to sell its products.  Because substantially all of the Company's assets were
related to the turf care business and the Company would no longer be authorized
to sell the products of its major supplier, it was concluded by the Board of
Directors of the Company and announced on July 29, 1994 that the Company should
cease its existing business operations and sell the operating assets of the
Company.  Accordingly, the Company had ceased all of its existing business
operations as of August 31, 1994.  Since August of 1994, the Company has been
actively seeking to sell its assets.  The shareholders approved the sale of
substantially all its assets at its annual meeting held on January 17, 1995.

As a result of the decision to sell the operating assets of the Company and the
subsequent efforts to sell all of the operating assets, the Company changed its
basis of accounting for its financial statements at August 31, 1994 from the 
going concern basis of accounting to the liquidation basis of accounting in
accordance with generally accepted accounting principles.  Consequently, assets
have been valued at estimated net realizable value (including subsequent actual
transactions described below) and liabilities are presented at their estimated
settlement amounts, including estimated costs associated with carrying out the
liquidation.  The valuation of assets and liabilities necessarily requires many
estimates and assumptions and there are substantial uncertainties in carrying
out the liquidation.  The actual realization of assets and settlement of
liabilities could be higher or lower than amounts indicated and is based upon
management estimates as of the date of the financial statements.  In addition,
as described in Note 10, significant uncertainties exist with respect to the
outcome of litigation in which the Company is a defendant.  No provision has
been made as of August 31, 1996 for any liability that may result upon ultimate
resolution of the lawsuits.












                                     F-6
<PAGE>   32
                              RSI Holdings, Inc.
                                      
            Notes to Consolidated Financial Statements (continued)




1.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Statement of consolidated net assets in liquidation as of August 31, 1996
includes approximately $155,000 of costs that the Company estimates will be
incurred during the period of liquidation, based on management's assumption
that the liquidation process will be completed by December 1996.  These costs
include anticipated legal fees ($28,000), accounting and auditing fees
($25,000), salaries ($46,000), lease commitments ($7,000), property taxes
($3,000), insurance and other overhead items ($8,000), shareholder relation
expenses ($5,000), and estimate of unforeseen costs ($33,000) that the Company
expects to incur from September 1, 1996 through December 31, 1996.  Because the
success in realization of assets and the settlement of liabilities is based on
management's best estimates, the liquidation period may be shorter than
projected or it may be extended beyond the projected period.  Remaining real
property having estimated net realizable value of $430,000 have not been sold
at August 31, 1996.

While in this liquidation process, the Company may seek alternative courses of
action, including investments in other business ventures.  Should such
alternatives not develop, any proceeds from the asset liquidation remaining
after the satisfaction of all liabilities and the resolution of all contingent
liabilities, would then be distributed to shareholders in the order of
liquidation preference.

CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its subsidiaries (all of which are wholly-owned).  Significant intercompany
balances and transactions have been eliminated.  The Company operated the
business of the former Porter Brothers subsidiary as a division of the Company
and the business of the former Debra Enterprises, Inc. as RSI Holdings of
Florida, Inc.

CASH EQUIVALENTS

The Company considers all highly liquid investments (United States treasury
bills) with a maturity of three months or less when purchased to be cash
equivalents.  At August 31, 1996, approximately $2,230,000 was invested in
United States Treasury bills.
















                                     F-7
<PAGE>   33
                              RSI Holdings, Inc.
                                      
            Notes to Consolidated Financial Statements (continued)




2.  REAL PROPERTY

Real Property at estimated net realizable value at August 31, 1996 consists of
land and buildings of $430,000.

Land and buildings values at August 31, 1996 are based on amounts determined by
an independent appraisal by a qualified appraiser.  The recorded value is net
of estimated selling expenses.  The appraisals assume a "reasonable" marketing
period (assumed to be one year).


3.  ACCRUED EXPENSES

Accrued expenses at August 31, 1996 are as follows:

        Deferred compensation                           $217,000
        Other                                             42,000
                                                        --------

                                                        $259,000
                                                        ========

4.  NOTES PAYABLE

The Company's $500,000 revolving unsecured line of credit (the "Line of
Credit") expired on December 31, 1995.  The Line of Credit was not used by the
Company.

The Company incurred interest cost of $64,000 during 1995.  Interest paid was
$92,000 during 1995.

Average short-term borrowings during fiscal 1995 were $16,000.  The weighted
average interest rate paid on short-term borrowings during fiscal 1995 was
9.89%.

5.  LEASES

The Company leased office and warehouse facilities in Shelby, North Carolina,
which are owned or controlled by a former Chairman of the Board of Directors
under a lease that expired on December 31, 1995.  Total rental expense
applicable to this operating lease was $22,000 for 1996 and $74,000 for 1995. 
A portion of the warehouse facility that was not in use was subleased by the
Company to a third party from October 1, 1993 through December 31, 1994 for
$2,317 per month.  A portion of the office area and all the warehouse facility
were subleased through December 1995 at an aggregate monthly rental of $5,844. 
Sublease rental income was received in the amounts of $23,000 and $65,000
during fiscal years 1996 and 1995, respectively.







                                     F-8
<PAGE>   34
                              RSI Holdings, Inc.
                                      
            Notes to Consolidated Financial Statements (continued)





5.  LEASES (CONTINUED)

The Company leased office and warehouse facilities in Little River, South
Carolina (the Myrtle Beach branch) for $3,400 per month under a lease that
expired in September 1995.  The building was subleased for six months beginning
October 1, 1994 at $3,000 per month.

During 1992, the Company executed a month-to-month lease arrangement for its
principal executive offices.  Effective September 1, 1993, the monthly rental
was $354 per month.  The office space is leased from a corporation that was a
principal shareholder in the Company until August 23, 1994.  The corporation's
directors and officers include a Vice President and former director and the
wife of the Chairman of the Board of the Company and its shareholders all own
more than 5% of the outstanding common stock of the Company.

During December of 1995, the Company executed a lease for office facilities in
Shelby, North Carolina at $350 per month through December 31, 1996.

The Company owned office and warehouse facilities in Fort Lauderdale, Florida
and Tampa, Florida.  The property located in Fort Lauderdale, Florida was
sold on July 31, 1996.  The Company received rental income of $132,000 and
$135,700 during fiscal years 1996 and 1995, respectively.

Additionally, the Company leases automobiles under noncancelable operating
leases that expire in 1996.  The automobile leases require the payment of
contingent rentals based on usage in excess of specified minimums. 
Substantially all of the leases require the Company to pay taxes, insurance,
maintenance and repairs.

Total rental paid relating to operating leases for 1996 and 1995 (net of
sub-lease rental income of $23,000 and $97,000 during 1996 and 1995,
respectively), was $21,000 and $115,000, respectively.

The costs related to the liquidation basis of accounting has been reduced by
lease and sublet lease income that the Company expects to receive during the
period of liquidation through December 1996.















                                     F-9
<PAGE>   35
                              RSI Holdings, Inc.
                                      
            Notes to Consolidated Financial Statements (continued)





6. SHAREHOLDERS' EQUITY

The Company's Incentive Stock Award Plan and the Stock Option Plan authorizes
the Board of Directors, to grant awards or options of up to 250,000 shares
under each plan to key management employees.  In accordance with the plan that
was adopted on November 15, 1991, the Board of Directors previously granted
options to purchase up to 135,000 shares under the Stock Option Plan at an
exercise price of $.31 per share.  On June 4, 1992, the Board of Directors
granted options to purchase up to 135,000 shares of the Company's common stock
under the Stock Option Plan at an exercise price of $.125 per share to the
holders of the previously granted options exercisable at $.31 per share.  A
condition precedent to each of such grants was that the recipient thereof
surrender the originally granted options.  None of such options have been
exercised.


7.  INCOME TAXES

During fiscal 1996, net deferred tax benefits were not recorded relating to
temporary differences since the Company is not assured that the resulting
additional deferred tax assets will be realized.  Significant components of the
Company's deferred tax assets and liabilities are as follows:

<TABLE>
        <S>                                             <C>
        ASSETS
        Net operating loss carryforward                 $ 3,281,000
        Liquidation accrual                                  57,000
        Real property valuation adjustment                   62,000
        Insurance accruals                                   93,000
        Allowance for doubtful accounts                      26,000
        Other                                                31,000
                                                        -----------

                                                          3,550,000
        Valuation allowance                              (3,547,000)

        Deferred tax assets                                   3,000

        LIABILITIES
        Depreciation                                          3,000
                                                        -----------

        Net deferred taxes                              $        --
                                                        ===========
</TABLE>









                                     F-10
<PAGE>   36
                              RSI Holdings, Inc.

            Notes to Consolidated Financial Statements (continued)



7.  INCOME TAXES (CONTINUED)

At August 31, 1996, the Company has net operating loss carryforwards available
for income tax purposes of approximately $8,947,000.  Such carryforwards expire
in 2006 through 2011.  The Company's ability to use its existing net operating
loss carryforward may be jeopardized or lost if the Company undergoes an
"ownership change".  An ownership change occurs if the ownership of the
Company's stock changes by 50 percent or more during any three-year period.

The valuation allowance decreased $40,000 during 1996.

8.  EMPLOYEE BENEFIT PLANS

The Board of Directors of RSI Holdings, Inc. previously issued equity units to
certain employees of a division of the Company.  These units entitle the
grantee to receive on the settlement date, with certain limitations, a note of
the Company equal in amount to a proportion of the equity enhancement of the
division from the date of issuance of the units to the settlement date.  Equity
enhancement is the net increase, if any, of the net worth of the division
following issuance of the units, with certain limitations.  The final deferred
compensation payment of $54,000 was made during the year ended 1995.

9.  AFFILIATED PARTY TRANSACTIONS

The secretary of the Company is a member of a law firm which represents the
Company.  Legal fees for services rendered by this firm to the Company amounted
to approximately $35,000 and $105,000 for the 1996 and 1995 fiscal years,
respectively.

See Note 5 concerning leases with affiliated parties.

10.  CONTINGENCIES

In October 1986, Wiegmann & Rose International Corp. ("Wiegmann & Rose"), a
wholly-owned subsidiary, began the closing and the commencement of orderly
liquidation of the net assets of this business segment which was engaged
principally in the fabrication and repair of shell and tube heat exchangers,
pressure vessels and related equipment.

In 1980, Wiegmann & Rose was notified by the California Department of Health
Services that a real property site formerly owned by Wiegmann & Rose and later
sold to Triple A Machine Shop, Inc. ("Triple A") was possibly contaminated and
in need of investigation and/or remediation.  Wiegmann & Rose began
investigation of the pollutants present at the site and funded initial
remediation efforts as required by the California Department of Health
Services.  Wiegmann & Rose did not cause any of the pollution found at the
site.

                                     F-11
<PAGE>   37
                              RSI Holdings, Inc.

            Notes to Consolidated Financial Statements (continued)




10.  CONTINGENCIES (CONTINUED)

In 1987, Triple A purchased the property from Wiegmann & Rose.  As part of this
transaction Wiegmann & Rose agreed to prepare a proposed plan of abatement for
contamination at the property, submit it to the Regional Water Quality Board,
and upon approval, implement the abatement plan.  Soon afterwards, consultants
for Wiegmann & Rose prepared a proposed plan of abatement and submitted it to
the Regional Board.  However, the California Department of Health Services
asserted jurisdiction over the matter, demanded that Wiegmann & Rose
investigate the possibility of buried drums at the property, and initiated a
planning process that produced a Remedial investigation and Feasibility Study,
Remedial Action Plan and Community Relations Plan.

In 1988, Wiegmann & Rose filed suit against NL Industries, Inc. ("NL"), a
former owner of the property, and Esselte Pendaflex Corporation ("Esselte"),
the generator of some of the waste that was found on the property, and alleged
that these two defendants were responsible for the contamination on the
property.  NL and Esselte filed third-party complaints against Triple A.  On
July 24, 1991, the United State District Court for the northern district of
California issued an order granting partial summary judgment in favor of
Wiegmann & Rose relating to the issue of the liability of the parties.  This
order states that, NL, the previous owner of the property and Esselte, which
generated the hazardous substance disposed of on the property, are liable for
waste associated with metal drums found on the property.  The order also
concluded that, at least with respect to such prior owner and generator,
Weigmann & Rose in not deemed to be a responsible party, is not directly liable
for the contamination and is entitled to recover reasonable attorney's fees and
costs.  The ruling did not address the possible liability of Wiegmann & Rose as
an indemnitor of Triple A, to which it had sold the property.  The litigation
against NL and Esselte was resolved December 31, 1991 through the entry of a
consent decree that required NL to abate the contamination diligently and to the
satisfaction of the regulatory agencies.

In August 1994, Triple A sued Wiegmann & Rose alleging that Wiegmann & Rose has
breached the contract of sale of the property to it, breached the covenant of
good faith and fair dealing implied in the contract, and maintained a
continuing nuisance on the property as the result of a failure to abate the
contamination within a reasonable time.  Triple A seeks special damages in 
excess of $2,700,000, general damages according to proof, and punitive damages
of $1,000,000.  Management believes that the allegations by Triple A are without
merit and plans to contest the case vigorously.  Management believes that its
insurance coverage may apply to losses in this matter.

                                     F-12
<PAGE>   38
                              RSI Holdings, Inc.

            Notes to Consolidated Financial Statements (continued)




10.  CONTINGENCIES (CONTINUED)

To date, the action which was filed in California state court has been removed
to Federal court.  On April 22, 1994, the Court granted Wiegmann & Rose's
motion for partial summary judgment.  This order effectively relieves Wiegmann
& Rose from any liability for events occurring before the entry of the consent
decree dated December 31, 1991.  As to events occurring after December 31 1991,
the consent decree provides that NL is principally responsible for the clean-up
and that Wiegmann & Rose has contingent liability with respect to these events
if NL does not perform.  Additional contamination has been discovered in an area
adjacent to the areas which NL has assumed responsibility for clean-up.  NL has
taken the position that it is not responsible for the remediation of this
contamination.  The extent of this contamination and the Company's
responsibility for clean-up has not been determined.  However, the ultimate
outcome of the litigation of this matter is not known.  No provision has been
made in the accompanying financial statements for any liability which may result
from this matter.

Wiegmann & Rose has also been sued, along with several other defendants, in
seven personal injury asbestos suits.  Although, Weigmann & Rose has been
dismissed without prejudice in each of the seven suits, Wiegmann & Rose could
be brought back into the litigation in five of these seven dismissed cases.  No
provisions have been made in the accompanying financial statements for any
liability which may result from this matter.

Legal and other costs relating to defense in the Wiegmann & Rose matters
discussed above totaled $80,000 during fiscal 1996 and $126,000 during fiscal
1995.  The Company received reimbursement from its insurance company during
fiscal 1996 and 1995 of past and current legal fees incurred to date of $82,000
and $134,000, respectively.

In addition, the Company is one of several defendants in a lawsuit filed in
July 1993 claiming indemnification with respect to payments due and the cost of
performing certain covenant and obligations under a land lease agreement
allegedly in default.  This agreement relates to a motel property previously
operated by the Company.  The Company intends to defend this matter
vigorously.  The ultimate outcome of this matter is not known.  No provision
has been made in the accompanying financial statements for any liability which
may result from this matter.

In February 1994, an individual served a complaint against the Company seeking
damages in excess of $15,000 for injuries sustained while operating a turf care
product sold by the Company.  The complaint also included the manufacturer of
the product.  The Company is unable to determine whether any loss will be
incurred and if so, the estimate of any range of loss.  In addition, the
manufacturer and its insurance carrier has accepted defense of the Company
regarding this matter.  The Company believes it has adequate liability insurance
coverage in the event that the manufacturer's insurance does not indemnify the
Company against a loss.  The Company believes that based on the insurance
arrangements with the manufacturer and its own insurance coverage that this
action should not have a material effect on the consummation of its plan of
liquidation and financial position.


                                     F-13
<PAGE>   39
                              RSI Holdings, Inc.
                                      
            Notes to Consolidated Financial Statements (continued)




10.  CONTINGENCIES (CONTINUED)

In January 1995, a complaint against the Company seeking damages in excess of
the minimal jurisdictional amount was served.  The Plaintiff alleges that he
was injured while operating a vehicle that was sold by the Company.  The
Complaint also named the manufacturer of the vehicle.  The manufacturer has
accepted defense of the Company regarding this matter under reservation of
rights.  The Company believes, however, based on the arrangements with the
manufacturer and the Company's own insurance, that this action should not have
a material adverse effect on the Company's consummation of its plan of
liquidation and financial position.


11.  SUBSEQUENT EVENT

Subsequent to August 31, 1996, the Company has begun negotiations to possibly
purchase the common stock of a business for approximately $15,000.  The
business is a consumer finance company that would originate, purchase and sell
consumer finance receivables.




























                                     F-14
<PAGE>   40

<TABLE>
<CAPTION>

                               INDEX OF EXHIBITS

<S>      <C>
3.1      Articles of Incorporation of RSI Holdings, Inc., as amended: 
         Incorporated by reference to Exhibit 3.2 and 3.2.2 to the Registration
         Statement of Form S-4 of RSI Corporation and Porter Brothers, Inc., 
         File No. 33-30247 (the "Form S-4").

3.1.1    Articles of Amendment and Certificate of Reduction of Capital of Porter
         Brothers, Inc.: Incorporated by reference to Exhibit 4.1 to the Form 
         8-K of the Registrant filed with the Securities and Exchange 
         Commission on November 28, 1989, File No. 0-7067.

3.2.1    By-laws of  RSI Holdings, Inc., as amended: Incorporated by reference 
         to Exhibit 3.1.1 to the Form S-4.

3.2.2    Amendments to By-laws.

4.1      See Exhibits 3.1, 3.1.1, 3.2.1 and 3.2.2.

4.1.1    Specimen of Certificate for RSI Holdings, Inc., common stock: 
         Incorporated by reference to Exhibit 4.1.2 to the Form S-4.

*10.1    RSI Holdings, Inc., Stock Option Plan, including an amendment:
         Incorporated by reference to Exhibit 10.9 to the Form 10-K of the
         Registrant filed with the Securities and Exchange Commission for the
         fiscal year ended August 31, 1990, File No. 0-18091.

*10.1.1  Amendment to Stock Option Plan: Incorporated by reference to Exhibit
         10.9.1 to the Form 10-K of the Registrant filed with the Securities and
         Exchange Commission for the fiscal year ended August 31, 1992, as 
         amended, File No. 0-18091.

10.2     Agreement by and between the Company and Treadco, Inc. dated as of
         February 6, 1996:  Incorporated by reference to Exhibit 10.1 to the 
         Form 10-QSB of the Registrant filed with the Securities and Exchange 
         Commission for the quarter ended February 29, 1996, File No. 0-18091.

10.3     Letter Agreement by and between the Registrant and Tresca Industries
         dated September 8, 1994:  Incorporated by reference to Exhibit 10.17 to
         the 1994 10-K.

10.4     Agreement by and between the Registrant and Carl Lipscomb and his 
         assigns dated September 16, 1994:  Incorporated by reference to 
         Exhibit 10.29 to the 1994 10-K.

10.5     RSI Holdings, Inc. Incentive Stock Award Plan, including an amendment:
         Incorporated by reference to Exhibit 10.8 to the Form 10-K of the
         Registrant filed with the Securities and Exchange Commission for the
         fiscal year ended August 31, 1990, File No. 0-18091 (the "1990 10-K").
</TABLE>


<PAGE>   41

<TABLE>
<S>      <C>
10.6     Amendment to Incentive Stock Award Plan:  Incorporated by reference to
         Exhibit 10.8.1 to the 1992 10-K.

21.      Subsidiaries of the Registrant.

23.      Consent of Ernst & Young LLP, Independent Auditors.

27.      Financial Data Schedule (For SEC use only)

99.      Consent Decree and Judgment dated December 31, 1991 entered by the
         United States District Court for the Northern District of California in
         Wiegmann & Rose International Corp., a South Carolina corporation,
         plaintiff, v. NL Industries, Inc., a New Jersey corporation, and
         Esselte Pendaflex Corporation, a New York corporation, defendants; NL
         Industries, Inc., a New Jersey corporation, and Esselte Pendaflex
         Corporation, a New York corporation, third party plaintiffs, v. Triple
         A Machine Shop, Inc., a California corporation, third party defendant,
         C.A. No. C-88-4817 FMS: Incorporated by reference to Exhibit 28.1 to
         the Registrant's Form 8-K, filed with the Securities and Exchange
         Commission on January 3, 1992, File No. 0-18091.
</TABLE>

*  Management contract or compensatory plan required to be filed as an
         exhibit pursuant to Item 13 of Form 10-KSB.